How Carillion's Board Missed the Looming Failure

The postmortem on U.K. construction giant Carillion Plc is now well underway, with a U.K. parliamentary inquiry into the firm's collapse holding hearings on Tuesday. One early conclusion should be clear: Britain's corporate governance code has a fatal flaw, and the way it is applied may help to mask the errors and mismanagement that led to Carillion's collapse.

Carillion was not just a major employer, with 43,000 employees worldwide, almost 20,000 of them in Britain. It was a large government contractor, with responsibility for building hospitals, roads and other critical infrastructure for the taxpayer. So why did the government, a major customer and stakeholder, take so long to plan for Carillion's collapse, especially after three profit warnings in six months last year, which sent the company's stock into a nosedive? Where were the pension fund trustees, auditors and the Pensions Regulator as the company's pension scheme deficit grew and the directors avoided paying in what was owed, while still rewarding shareholders with handsome dividends?